The warning signs persist, but stocks remain in clear uptrends and selling pressure remains muted. First, recent strength in treasuries is a concern because they are negatively correlated with stocks. Second, the major index ETFs are overextended and ripe for a pullback or consolidation. Third, small-caps have been underperforming since early February. On the S&P 500 ETF (SPY) chart, the ETF bounced off the trendline extending up from 20-Dec and closed above 137 on Monday. Even though the advance has slowed in recent weeks, there is clearly no reversal or signs of significant selling pressure. The trendline marks first support at 136 and last week's lows mark key support at 134. RSI support remains at 40.
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What is up with treasuries? Even though stocks are strong and oil is up significantly the last 10 weeks, the 20+ Year T-Bond ETF (TLT) refuses to break down. Most recently, TLT bounced off support with a strong move the last five days. This surge was enough to break the prior peak and the ETF is now challenging the trendline extending up from 19-Dec. Keep in mind that the falling channel on the 60-minute chart looks like a bull flag on the daily chart. A breakout would signal a continuation of the Nov-Dec advance. Such a move would be bearish for stocks, which are negatively correlated with treasuries. Perhaps treasuries are moving higher because the surge in oil and gasoline prices will put a damper on the economy and this will keep the Fed accommodative.
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The US Dollar Fund (UUP) is trying to firm near its early February lows, but remains in a downtrend since mid January and since last week. The decline in treasury yields is also negative for the greenback. First resistance is marked at 22, a break of which would reverse the seven day slide. RSI resistance is set at 60. These are the first two levels to watch. Further up, key resistance remains at 22.30.
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After a big surge from 37 to 42 (13.5%), the US Oil Fund (USO) finally corrected a bit with a sharp decline below 41.50 on Monday. While the bigger trend remains up, this correction could extend a little further. Last week's consolidation around 40.50 marks the first support zone to watch. RSI support is set in the 40-50 zone. Further down, broken resistance turns into a support zone in the 38.5-39 area.
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The Gold SPDR (GLD) broke falling flag resistance with a surge last week and then corrected with a smaller falling flag the last few days. A move above 173 would break flag resistance and signal another continuation higher. Broken resistance turns into the first support zone to watch around 169-170 and key support remains at 166.
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Key Economic Reports:
Tue - Feb 28 - 08:30 - Durable Orders
Tue - Feb 28 - 09:00 - Case-Shiller 20-city Index
Tue - Feb 28 - 10:00 - Consumer Confidence
Wed - Feb 29 - 07:00 - MBA Mortgage Index
Wed - Feb 29 - 08:30 – GDP Estimate
Wed - Feb 29 – 08:00 - Second LTRO round for EU Banks
Wed – Feb 29 – 08:00 – Italian bond auction
Wed - Feb 29 - 09:45 - Chicago Purchasing Manufacturers Index
Wed - Feb 29 - 10:30 - Oil Inventories
Wed - Feb 29 - 14:00 - Fed's Beige Book
Thu - Mar 01 - 08:30 - Jobless Claims
Thu - Mar 01 - 08:30 - Personal Income & Spending
Thu - Mar 01 - 10:00 – ISM Manufacturing Index
Thu - Mar 01 - 10:00 - Construction Spending
Thu - Mar 01 - 14:00 - Auto & Truck Sales
Charts of Interest: Tuesday and Thursday in separate post.
This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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